Japan Investment

Japan: Machinery orders hit 20-month high in February

April 11, 2013

Core machinery orders, a leading indicator of capital spending over a three to six month period, improved markedly in February, after plunging the most in eight months in January. Headline machinery orders (private sector, excluding volatile orders) rose a seasonally adjusted 7.5% over the previous month, contrasting the 13.1% drop tallied in January. In addition, the print marked the strongest increase seen since June 2011 and overshot the 6.9% expansion expected by market analysts.

Meanwhile, both overall manufacturing orders and non-manufacturing books recorded a healthy rebound in February. Machinery orders from overseas, which determine future exports, registered their first positive reading in three months.

However, compared to the same month last year, core machinery orders fell 11.3% in February, after declining 9.7% in January. Building on the negative annual reading, the trend continues to point downwards, with annual average growth in core machinery orders falling from minus 1.9% in January to minus 3.5% in February.

Although the Cabinet Office maintained its assessment on machinery orders stating that "there are signs of a moderate pick-up", a government spokesman acknowledged that it will be difficult to achieve the 0.8% rise forecasted by the government for the first quarter this year.

FocusEconomics Consensus Forecast panellists expect investment to rise 0.4% in 2013, which is down 0.2 percentage points over the previous month's projection. In 2014, the panel sees investment expanding 3.1%.

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In October, core machinery orders, a leading indicator for capital spending over a three- to six-month period, rebounded following September’s sharp contraction, which had represented the steepest fall since records began in 1987.

Industrial production shot up 2.9% on a month-on-month and seasonally-adjusted basis in October, contrasting September’s revised 0.4% decline (previously reported: -1.1% month-on-month)—which came on the back of a wave of natural disasters that hit the country in the month.

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